Hudson Hotels Corp. v. Choice Hotels Intern.

• Decision Date: 11 June 1993
• Docket Number: D,No. 1216,1216
• Citation: 995 F.2d 1173
• Parties: HUDSON HOTELS CORPORATION, Plaintiff-Appellee, v. CHOICE HOTELS INTERNATIONAL, and Robert Hazard, Defendants-Appellants. ocket 92-9258.
• Court: U.S. Court of Appeals — Second Circuit

Page 1173

995 F.2d 1173

27 U.S.P.Q.2d 1024

HUDSON HOTELS CORPORATION, Plaintiff-Appellee, v. CHOICE HOTELS INTERNATIONAL, and Robert Hazard, Defendants-Appellants.

No. 1216, Docket 92-9258.

United States Court of Appeals Second Circuit.

Argued March 8, 1993.

Decided June 11, 1993.

Beryl Nusbaum, Rochester, NY (Percival D. Oviatt, Jr., Woods, Oviatt, Gilman, Sturman & Clarke), for plaintiff-appellee.

Thomas R. Jones, New York City (Susan Buckley, Donald J. Mulvihill, James Sandnes, Peter Moskowitz, Cahill Gordon & Reindel), (Paul J. Yesawich III, Patricia A. Hulley, Harris Beach & Wilcox, Rochester, NY), and (Amy Strassmeyer, Choice Hotels Intern., Inc., Silver Spring, MD), for defendants-appellants.

Before: KEARSE and CARDAMONE, Circuit Judges, and ELLEN B. BURNS, Senior Judge of the United States District Court for the District of Connecticut, sitting by designation.

ELLEN B. BURNS, Senior District Judge:

In this diversity action, the Defendants-Appellants, Choice Hotels International, Inc. (formerly known as Quality Inns International, Inc. ("Quality")) and Robert Hazard ("Hazard") appeal under 28 U.S.C. § 1291 from a judgment of the United States District Court for the Western District of New York (Telesca, J.) entered on September 28, 1992 in the amount of $2,500,000 in favor of the Plaintiff-Appellee, Hudson Hotels Corp. ("Hudson"), for misappropriation of a trade secret following a jury trial. For the reasons that follow, we reverse.

BACKGROUND

At a meeting of the International Operator's Council, Loren Ansley ("Ansley"), the now deceased founder and principal officer of Hudson, approached Robert Hazard, Chairman and Chief Executive Officer of Quality, to describe an idea or concept about a small-size, upscale hotel room he designed to capture the low-budget market segment of the hotel industry. At the meeting, Ansley never suggested that his idea was proprietary or confidential.

At a later meeting, Ansley presented Hazard with an unsolicited letter revealing in more detail the "trade secret" or what he described as the "Microtel" concept, that is, a small-size, upscale hotel room that purported to result, when built, in reduced maintenance cost, less land utilization, and reduced construction cost. The letter contained a typed statement, which the parties never discussed, that the enclosed information was proprietary to Hudson. Ansley and Hazard discussed a possible joint venture, and, a little over a month after presenting the letter, Ansley sent Hazard a confidentiality agreement which Hazard never signed.

Hudson and Quality respectively proposed and explored separate joint ventures to build and market hotels that embodied Ansley's idea but negotiations ended unsuccessfully because the parties could not agree about a continuing royalty. Neither proposal, however, involved the purchase or sale of the Microtel concept.

Quality then embarked on its own to develop a small-size, upscale hotel chain, and its architect reviewed, but ultimately did not follow, Hudson's initial drawings. Hudson also developed its own Microtel franchise operation.

In its complaint, Hudson originally alleged claims for breach of confidential relationship, misappropriation of trade secret, fraud, unjust Before trial, the district court twice denied Quality's motions for summary judgment after finding triable issues of fact. Specifically, the district court found unpersuasive Quality's arguments (i) that there was an absence of novelty that precluded recovery as a matter of law under any cause of action and (ii) that the idea, because it would inevitably be disclosed by the marketed good, could not constitute a trade secret. Before trial, however, Hudson informed the district court through pretrial briefing that Hudson had affirmatively abandoned any claim that the Microtel concept is novel. As a result, the district court precluded Hudson from presenting its claim for misappropriation under the New York law of ideas, but allowed Hudson to try the case on a single claim, misappropriation of a trade secret, despite its having previously amended the Complaint to delete any express reference to trade secrets. The jury returned a verdict for Hudson solely on its claim of misappropriation of a trade secret.

enrichment, and breach of contract but later amended its complaint to exclude all express references to a trade secret and instead alleged claims for theft of an idea or concept, unjust enrichment, breach of implied contract, and breach of confidential relationship.

Throughout the proceedings below, the district court thrice denied Quality's motions for judgment as a matter of law under Fed.R.Civ.P. 50(a)-(b).

On appeal, Quality first contends that, because the idea of a small-size, upscale hotel room is not a trade secret entitled to protection under New York law, the district court erred when it denied its motions for summary judgment. Quality further contends that the district court erred when it allowed the case to go to trial and to the jury after Hudson affirmatively abandoned any claim that the Microtel concept was novel. In essence, Quality claims that, regardless of the label for the plaintiff's cause of action, a product idea must be novel to be protectible under New York law. Because we agree and vacate the judgment, Quality's other arguments on appeal need not be addressed.

DISCUSSION

I.

Summary judgment under Fed.R.Civ.P. 56(c) shall be granted if the Court finds, after viewing the facts in a light most favorable to the nonmoving party, Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970), that "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The burden is on the moving party to show that no material facts are in dispute, Donahue v. Windsor Locks Bd. of Fire Comm'rs, 834 F.2d 54, 57 (2d Cir.1987), and a dispute over a material fact exists if the evidence would allow a reasonable jury to return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986); Suburban Propane v. Proctor Gas, Inc., 953 F.2d 780, 788 (2d Cir.1992); Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 12 (2d Cir.1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987). A court's ultimate role in considering a motion for summary judgment is not to resolve disputed issues, but only to determine whether there is a genuine and material issue for trial. Knight v. U.S. Fire Ins. Co., 804 F.2d at 11; Fed.R.Civ.P. 56(e).

We review the district court's ruling on a motion for summary judgment with "the same standards, on a de novo basis." Leon v. Murphy, 988 F.2d 303, 308 (2d Cir.1993) (citations omitted); Mikinberg v. Baltic Steamship Co., 988 F.2d 327, 330 (2d Cir.1993); Viacom Int'l Inc. v. Icahn, 946 F.2d 998, 1000 (2d Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 1244, 117 L.Ed.2d 477 (1992); Bryant v. Maffucci, 923 F.2d 979, 982 (2d Cir.), cert. denied, --- U.S. ----, 112 S.Ct. 152, 116 L.Ed.2d 117 (1991).

We similarly review the district court's denial of a motion for judgment as a matter of law under Fed.R.Civ.P. 50(a)-(b) de novo. See Sir Speedy, Inc. v. L & P Graphics, Inc., 957 F.2d 1033, 1038-39 (2d Cir.1992). In

                ruling on a motion for a judgment as a matter of law at any stage of the trial permitted by Fed.R.Civ.P. 50(a)-(b), "the district court is required to deny the motion unless, viewed in the light most favorable to the nonmoving party, 'the evidence is such that, without weighing the credibility of the witnesses or otherwise considering the weight of the evidence, there can be but one conclusion as to the verdict that reasonable men could have reached.' "  Sir Speedy, Inc. v. L & P Graphics, Inc., 957 F.2d at 1038-39 (quoting Simblest v. Maynard, 427 F.2d 1, 4 (2d Cir.1970));  see also W.W.W. Pharmaceutical Co. v. The Gillette Co., 984 F.2d 567, 571 (2d Cir.1993).   In analyzing the issues raised on appeal, New York law, which the parties agree controls, is applied
                

II.

To recover under New York law for the misappropriation of a trade secret, the plaintiff must demonstrate (i) that it possessed a trade secret and (ii) that the defendant used that trade secret in breach of an agreement, a confidential relationship, or duty, or as a result of discovery by improper means. Integrated Cash Mgmt. Servs., Inc. v. Digital Transactions, Inc., 920 F.2d 171, 173 (2d Cir.1990); Speedry Chem. Prods., Inc. v. Carter's Ink Co., 306 F.2d 328, 331 (2d Cir.1962); Brignoli v. Balch Hardy & Scheinman, Inc., 645 F.Supp. 1201, 1205 (S.D.N.Y.1986); Sublime Prods., Inc. v. Gerber Prods., Inc., 579 F.Supp. 248, 251 (S.D.N.Y.1984); Rapco Foam, Inc. v. Scientific Applications, Inc., 479 F.Supp. 1027, 1029 (S.D.N.Y.1979); Restatement of Torts § 757 (1939). We need not reach the second prong of the above conjunctive analysis because, as a matter of law, the Microtel concept is not a protectible trade secret.

Under New York law, a trade secret "may consist of any formula, pattern, device or compilation of information [that] is used in one's business, and [that] gives [the owner] an opportunity to obtain an advantage over competitors who do not know or use it." Restatement of Torts § 757 cmt. b (1939); Delta Filter Corp. v. Morin, 108 A.D.2d 991, 485 N.Y.S.2d 143, 144 (3d Dep't 1985); see also Lehman v. Dow Jones & Co., 783 F.2d 285, 297 (2d Cir.1986). ¹ "It is critical to note, however, that the commonly accepted common law definition of a trade secret 'does not include a marketing concept or new product idea' submitted by one party to another." 2 R. Milgrim, Milgrim on Trade Secrets § 8.03, at 8-31 (1992 & Supp.1992) (quoting Richter v. Westab, Inc., 529 F.2d 896, 900 (6th Cir.1976)) (citation...